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19 Common Mistakes You and Every Employer Are Probably Making

Very few employers start out as lawyers, and many of you have never been to business school. You had an idea, got to work, and your business grew. Or you started in an entry-level, threw yourself into your work, and climbed the ladder. Regardless of your specific success story, the details probably don’t include the nuances of business, employment, or contract law.

Being a fair and honest employer will get you pretty far, but everything you’ve built can be threatened by one oversight that leads to a lawsuit. Here are some common employer mistakes to stop making today.

1. Altering the At-Will Nature of Employment

What is at-will employment? At-will employment means that an employee can be terminated at any time, for any reason – with or without cause. On the other side of the coin, it means that the employee can leave his or her position without any repercussion. For most employees, it is presumed they are  employed at-will, unless he/she can show evidence to the contrary.

Have you given your employees reason to believe that their employment is not at-will? This commonly takes place during performance reviews or during meetings announcing promotions or pay increases. Making comments either verbally or in writing that employees will not be terminated as long as certain goals are met, or if certain events do not occur, can alter the nature of at-will employment. Avoid doing this, and make sure that employment is described as being at-will in both new-hire paperwork and your employee handbook.

2. Failing to obtain workers’ compensation and disability insurance

Worker’s compensation and disability insurance are two separate policies that cover different issues. Worker’s compensation insurance covers any injuries that employees incur while working. Disability insurance (in both short-term and long-term versions) covers non job-related illness or injury, and typically offers a payment that is a portion of the employee’s total wages.

Nearly all employers are required by state laws to carry worker’s compensation insurance. The opt-outs are few and far between, such as some states granting an exemption to employers with fewer than three employees. Only a handful of states require disability insurance, but it can be a great investment that reduces turnover, and can potentially protect you from Americans with Disabilities Act (ADA) related litigation.

It can be easy to let these forms of coverage lapse, particularly if you have employees performing very low-risk clerical actions. Your coverage can also become insufficient as your company grows in a manner that leads to having employees covering different duties, or in different states. Consult with you counsel to make sure you are maintaining the correct coverage for your needs.

3. Not maintaining recruitment and hiring documentation for prospective employees

After you hire a new employee, what do you do with the resumes and interview notes on the people you did not hire? If you think you can toss them, think again. Many federal laws, such as the ADA and Age Discrimination in Employment Act (ADEA), control how long you must keep the records of your hiring process.

For most employers, records must be kept for one year after the hiring decision has been made. Why? Hiring decisions cannot be discriminatory. Do you have enough documentation to show that your hiring processes are fair? This means maintaining resumes, correspondence, email correspondence, meeting calendars, and meeting notes of all candidates for filled and unfilled positions.

4. Keeping personnel, medical, and citizenship records of employees all in one mixed-up file

A new supervisor in your facility is having issues with an employee’s performance, and asks HR for the employee’s file in order to review it. What information will HR be giving to that supervisor?

Both medical and citizenship records can contain information that touches on protected classes. Having this information separated will allow you to easily provide supervisors with only the information relevant to workplace performance. This can help ensure that the supervisors are making decisions based only on pertinent information.

Most employers have at least three or four different filing systems for employment records: the main personnel file that contains employee performance information, the medical/confidential file that contains protected/non-job-related or confidential information, and the payroll records that are usually maintained separately by the payroll administrator(s). Form I-9 files should always be maintained separately.

Additional files may be necessary to maintain hiring records, investigations, drug test results, and other documents. Employers must give special consideration to where and how they maintain these files, limiting access to only those with a need to know, and protecting applicants and employees from discrimination, identity theft, breach of privacy, and Health Insurance Portability and Accountability Act (HIPAA) violations.

5. Failing to Document Overtime Exemption Qualifications through a Job Description

The most common classifications for employees are hourly and exempt. Hourly employees must be paid for overtime, exempt employees are “exempt” from this and other wage requirements due to the nature of their jobs. It might be tempting to classify numerous employees as exempt to get around this, but there are requirements to follow. Exempt employees are typically those in executive, administrative, professional, IT, and sales positions.

Job descriptions can be helpful in justifying an exempt position. Do you have detailed job descriptions for all of your exempt positions, and are they up to date? As employees take on new duties and their jobs fundamentally change, make sure that their job descriptions change to match.

6. Failing to make payroll in a timely manner

One of the most important lessons employers need to learn is that pay is sacred. Employees must be paid for the time that they work, and in a timely fashion. There are both federal and state laws that require regularly scheduled and fulfilled payroll.

Payroll rules can be different for exempt, non-exempt, and 1099 workers. Make sure that your counsel knows all of the unique issues you need to comply with for your staff.

7. Failing to Provide Meal and Rest Breaks

There is actually no federal requirement to provide meal or rest breaks, but many states do have comparable laws. Do you know the state laws governing meal and break times for your employees? They can vary greatly. Paid breaks are not required in any state, but unpaid meal and rest breaks are mandatory when shifts are of certain lengths.

California requires a half-hour unpaid meal break after five hours of work, unless the shift is 6 hours or less in total. If you have employees working shifts longer than eight hours, the rules for meal breaks can get more complicated. Only a handful of states require rest breaks, and California is one of them. Complying with these laws consistently can become even more complex for employers with locations in multiple states.

8. Failing to Have or Update an Employee Handbook

Creating and regularly updating your employee handbook can be a big investment, but it can save you a lot of time and pay huge returns. Daunted by such a big project? Start by simply documenting the policies and procedures you already have in place, or the items on this list! If you do have a handbook that has not been updated in many years, it may be doing more harm than good.

Review by an attorney is essential before publishing a handbook to your employees. Your counsel can help you ensure that you are compliant with all the current laws that protect both your company and employees.

9. Not Treating Employees Equally  

If your employees have the same qualifications and are doing the same job, you need to treat them equally. Even if the perks some get are informal, such as first pick on vacation requests, you need to formalize your policies.

What is the worry with unequal treatment? If the employees that feel unfavored happen to be part of a protected class, you are opening yourself up to a world of risk. Even if they are not, treating employees unequally can result in poor morale and performance, lots of turnover, and a bad reputation for your company.

10. Failing to Follow your Own Corrective Action Policy

Many employers have a corrective action policy, but how often is it followed? Whether it’s because you don’t want to write up an employee you like for something “small,” or just because you’re too busy for the required documentation, corrected action gets overlooked.

Not following your policy, or following it inconsistently, can leave you exposed to numerous risks. An employee being demoted or terminated can easily allege that he/she was never given proper instructions or feedback. He can even allege that the action against him was due to discrimination, not poor performance.

11. Failing to Conduct Investigations

It’s easy to ignore employee complaints and allegations. You just don’t want to get involved, and who knows what you will find? What you want to do is not always what you should do! Ignoring issues seldom resolves them, and your lack of action can become another liability. Investigation of employee complaints and allegations needs to be both rapid and objective.

12. Failing to Competently Conduct Investigations

How do you ensure that your investigation does not just make the situation worse? Try to act quickly to get accurate reports. Most of us don’t remember what we had for lunch yesterday, so we certainly won’t remember the details of how that problem started at work two weeks later. When a problem occurs, interview witnesses and document all findings as quickly as possible. Save any photos, camera footage, or access records in a secure format.

If you truly don’t know where to start, a good format to follow for investigations is SBAR: Situation, Background, Assessment, and Recommendation. Try to be as objective as possible in documenting the first three, and work with your counsel to create your recommendation. Remember that you may be required to report your findings to external agencies such as Occupational Safety and Health Administration (OSHA).

13. Not Conducting an Appropriate Termination Meeting

The way that you handle a termination meeting can be a key factor in what an employee chooses to do after leaving — including suing you. It’s an unpleasant meeting that most would rather avoid, but having a plan in place for terminations can prevent even more unpleasant issues in the future.

Prepare in advance for the meeting. Review the documentation, and hold the meeting in a private place. Clearly state that the employee is being terminated, and offer objective, documented evidence. Make sure that you have all your paperwork ready. Include any severance package paperwork, information on continuing health coverage, documentation of any final vacation payouts, contractual obligations, and information on when he will receive his final paycheck. There are state laws on when a terminated employee should receive his/her final check: be sure you are following the applicable ones.

In addition, make sure that the employee has contact information for the right person at your company for any questions that may come up in the future. Ending the meeting on a cooperative note can greatly help to mitigate future hostility from the terminated employee.

14. Failing to Engage in Interactive Process

A new job applicant has a disability that needs accommodation, or an existing employee experiences a new disability that needs accommodation. How do you respond, and how do you ensure that you act in a way that helps the employee while protecting your company?

Interactive process is the communication that occurs between the individual requesting accommodation, and the employer providing the accommodation. Both must document and explain the accommodation needs, and whether or not they are reasonable. There are both requirements and limitations to accommodation requests. Your counsel can ensure that you comply with both.

15. Committing Wage Theft

You don’t need to be a burglar in a black eye mask to commit wage theft: it can include incorrectly classifying employees as exempt to avoid paying overtime, violating minimum wage requirements (via pay rate or deductions), or simply asking employees to “help out” by working off of the clock.

Wage theft can also come in the form of simply not paying employees for work done. Remember: pay is sacred. If you have questions about employee classification, or perhaps a unique situation where your employees also volunteer for your organization, consult with your counsel to be sure no one is getting robbed.

16. Refusing to Reimburse Employees for Work-Related Expenses

The state of California requires employers to reimburse employees for all work related expenses, ranging from mileage to the cleaning of a required uniform. Are you offering your employees all of the reimbursements that they are entitled to? Laws can vary from state to state, and these expenses can add up quickly for employers.

17. Failing to Confirm Employee Maintenance of Independent Licenses and Credentials

Are you are a hospital that needs to verify numerous credentials and licenses for each physician, or a pizza parlour that needs to make sure your delivery drivers have current car insurance? No matter the industry, failing to verify the independent credentials that your employees need to do their jobs can be a huge liability. Both the doctor and the delivery driver have the potential to injure someone else on your time.

Your involvement may vary according to the level of risk, and the amount of certifications your employees need. Remember to verify the certifications or coverage with the issuing agency, not just the employee. Don’t think this is an issue for you? At a minimum, conduct an annual I9 audit. With good files and record keeping, this should not be a difficult or lengthy process.

18. Not Paying Accrued Compensation at Time of Termination

Again: pay is sacred. Whatever people have earned, whether it is commission or vacation days, must be paid at the time of termination. If you plan to vary from this at all, you must have a signed agreement on file from that employee documenting that he/she understands the loss at termination.

19. Misrepresenting the Performance of a Former Employee

Many former employers won’t do much other than verify dates of employment. As a representative of your company (not a personal reference), you might consider doing the same. There are risks involved in reporting anything other than facts that can be verified by objective data that you have on record. A truck driver who was never in an accident while working for you? Fine to report. A truck driver whose customers loved or hated him? Don’t report it: this can expose you to risks of defamation.

Be a Better Employer

Mistakes, accidents, bitter former employees—sometimes bad things do happen to good people. This list can help you straighten out some common issues, and hopefully keep you 19 steps further away from death-by-lawsuit.